The last year has been hard on borrowers. Mortgage interest rates spiked last autumn following Liz Truss’s disastrous mini budget and, after a brief dip in the early part of this year, we saw average fixed rates reach more than five times what they’d been just two years earlier.
However, the good news is that mortgage rates are now on the way down, thanks to a significant fall in the rate of inflation inspiring confidence in the markets. At the start of this year, CPI (consumer price inflation) stood at 10.1% and the latest figures show that by August it had dropped to 6.7%. Capital Economics (CE) is currently forecasting that it will be sub-5% by the end of 2023 and around 1.2% by this time next year.
As far as the Bank of England base rate is concerned, CE predicts it will hold steady at 5.25% for the next 12 months, before dropping to 4.75% by the end of 2024 and 3% by Q4 2025.
What’s happening to mortgage rates?
Even though the base rate is set to remain unchanged until the end of next year, lenders are starting to factor in the fact that it – and therefore their own borrowing costs - will be around 2% lower in two years’ time. And so that is reflected in their fixed-rate products.
Although the weekly change in average rates between 26th September and 3rd October was slight, there were reductions at all LTVs. Here’s how average rates stood at 3rd October:
LTV 2-year fixed 5-year fixed
95% 6.42% 5.86%
85% 6.13% 5.58%
75% 5.79% 5.31%
60% 5.61% 5.07%
Source: Rightmove
And affordability for borrowers is being boosted by a rise in earnings. ONS figures show that annual growth in regular pay for the both the Feb-April and May-July periods this year was 7.8% - that’s the highest growth rate since records began in 2001. In real terms, i.e. adjusted for inflation, regular pay for May-July rose by 0.6% year on year, and total pay (including bonuses) rose by 1.2%.
So, with wages rising well, mortgage rates coming down and the wider cost-of-living crisis gradually easing, all borrowers and consumers should feel the financial pressure on them lifting over the coming months and years.
If you are currently on a fixed-rate mortgage, speak to a broker at least six months before your deal expires, as you can now lock in new rates up to six months ahead of time, thanks to the Government’s Mortgage Charter. Even if you don’t think you can afford to buy or move right now, it’s still worth speaking to a broker to discuss what options are available to you – you might be pleasantly surprised!
To find out about the latest deals or discuss any aspect of your mortgage borrowing, you can book a free, no-obligation appointment with an experienced Mortgage Scout adviser via our website.
Additional sources:
Average fixed rates autumn 2021 https://www.statista.com/statistics/386301/uk-average-mortgage-interest-rates/ / https://www.moneysavingexpert.com/news/2021/06/platform-launches-cheapest-two-and-five-year-fixed-mortgage-rate/
Average fixed rates Oct 2023 https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/
Capital Economics
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
MAB 16541
